In mid-October, runway darling Marc Jacobs announced he would be leaving his post as Artistic Director for Louis Vuitton (NASDAQ: LVMHF) to focus on his own company's IPO. Just the thought of such a thing created buzz for an IPO that is, on the conservative side, happening three years from now. It caused Louis Vuitton's stock price to rise by two dollars and about a million shares to be traded on the day of the announcement. It also was the impetus for a discussion of fashion stocks as great "buy and hold" investments going into the New Year.

Michael Kors and the rise of fashionable investments
For instance, take a look at Michael Kors' (NYSE:CPRI) IPO earlier this year. It hit the market at $20 per share and has quadrupled in value since. There were some early comparisons to the Ralph Lauren brand and worries that it would not reach the market capitalization of the formidable brand.

Now, Michael Kors' company is being added to the S&P 500 as its market capitalization has reached $15 billion. In those terms, it's heading towards overshadowing Ralph Lauren, which has a $15.54 billion market cap. Some of this was spurred by the initial buzz around the IPO itself. However, a designer's company fails or succeeds much like any other, by serving the changing demands of the clientele. Kors continues to innovate and produce new products (undoubtedly drawing from the exposure both the company and the designer receives from Project Runway). In late 2004, the company made the smart move of introducing a lower cost product line. It killed two birds with one stone, reaching a younger audience and as well as loyal customers who may have wanted a lower cost option. It especially paid off in late 2008 and 2009 when the economic downturn started and markets began to decline.

Other fashion houses poised for big gains
Whether or not  Marc Jacobs will have the same combination of luck and savvy remains to be seen. But in the meantime, there are some wonderfully undersold opportunities ahead in fashion stocks. For instance, German luxury brand Hugo Boss outperformed most of the sector. In January, the company initiated an American Depositary Receipt, or ADR, through New York Mellon bank, which will will allow it to be traded over the counter in the US. Meanwhile, Italy's Prada jumped 67% in 2013. Both companies are banking on the economic recovery of Europe, combined with an increase in Chinese demand, to boost sales going into next year. For its part, Hugo Boss will be opening new stores in China and Europe over the next two to three years to reach expanding markets. Prada announced that it expects to exceed sales targets in Q4 and Q1. Furthermore, it is moving into the fragrance market via a new partnership with Coty.

Prada is still being trading on the pink sheets because of its deliberately low market capitalization in the United States and not filing with the SEC, although it posts its earnings online. I generally avoid recommending trading off the exchanges or going to a foreign exchange. For example, Hugo Boss is publicly traded on Xetra, a European exchange. With these two and other luxury brands, you have the option to take advantage of their growth opportunities by buying into a sector-specific mutual fund like the Consumer Staples Select Sector or the Pictel Premium Brands Fund.

Coach will be competitive
Another company worth looking at is Coach (NYSE:TPR). In recent years, design quality and sales at the company have both lagged. As reported in the Financial Times in October, both global and North American sales were down 1% or more, which equated to roughly $778 million in losses last quarter. The reason: losing customers to newer, more innovative brands like Michael Kors and Tory Burch. Analysts point to a need to freshen up its designer handbag line. I personally haven't bought one since the popular "Poppy" line debuted three or four years ago – that's telling.

The company has a new CEO coming on board and is making changes to its creative and commercial teams. You can already see freshness in Coach stores. Go in one and you will see a lighter, more inviting and user-friendly look a la  Michael Kors, rather than the more conservative woody atmosphere of Coach stores past. It is also opening new stores in North America and Europe.

Coach's P/E ratio is still at 14. The company's earnings are stable, holding at $0.077 per share over the last year, despite its problems and the lagging economy. In its own quarterly report, the company shows that it's nearly debt free. The combination of these circumstances bodes well for Coach's future, and some analysts project its earnings to triple or quadruple over the next five years.

Exploring Europe and China
Now, back to Louis Vuitton and its outlook: Marc Jacobs' parent company was soft for most of 2013, its stock rising only 5% compared with 20% for the sector. However, its future growth looks very bright as it begins to invest in start-up fashion lines. It's also opening new shops in China and Europe, and exploring an outlet store model to capture "holiday" shoppers or those who turn vacations into shopping excursions. The bottom line is that going luxurious in your 2014 buy and hold strategy could pay off big; maybe even big enough to afford a new Louis Vuitton bag.